Mudassir Rizwan

Tensions between India and Pakistan have taken yet another confrontational turn. According to a senior Indian government official, New Delhi plans to urge the Financial Action Task Force (FATF)—the global money laundering and terrorism financing watchdog—to re-add Pakistan to its “grey list.” Simultaneously, India will lobby against new World Bank funding for Islamabad. This development, if followed through, could have serious diplomatic, economic, and regional consequences—not only for Pakistan, but also for broader South Asian stability.

The FATF grey list, often seen as a diplomatic instrument in addition to being a financial compliance tool, is designed to flag countries that fall short of effective regulation and control over illicit financial flows. Pakistan was greylisted in 2018, and after years of implementing reforms under strict FATF scrutiny, it was finally removed in 2022. This delisting brought Islamabad some long-awaited credibility in the eyes of global lenders and investors, enabling smoother access to foreign financing—a lifeline for a country teetering on the edge of economic collapse.

India’s intention to reverse that progress reflects more than just regulatory concern—it is a calculated geopolitical move at a time when regional dynamics are rapidly shifting.

While India maintains that its move is rooted in security and transparency concerns, the timing and context suggest a more complex calculus. Relations between the two countries have been icy for years, with periodic flare-ups over Kashmir, cross-border militancy, and diplomatic stand-offs. The recent uptick in tensions comes amid escalating political rhetoric and a hardening of positions on both sides.

India’s concern over cross-border terrorism is longstanding and legitimate. Yet, critics argue that invoking FATF once again against Pakistan appears more punitive than procedural—especially considering that the FATF itself acknowledged Pakistan’s substantial progress in addressing its action plan when it was removed from the grey list.

Re-applying pressure on Islamabad via FATF could thus be seen as an extension of India’s strategy to diplomatically isolate Pakistan on international platforms—something it has consistently attempted in forums such as the United Nations, SAARC, and now possibly at the World Bank.

The implications for Pakistan’s already fragile economy could be severe. FATF greylisting historically results in increased scrutiny from global banks and financial institutions. Even without formal sanctions, being on the grey list makes it more difficult and expensive for a country to access international markets, secure loans, or attract investment. The reputational damage alone can deter foreign direct investment and slow down economic recovery.

If India succeeds in convincing the FATF to relist Pakistan, it would send negative signals to global lenders like the International Monetary Fund (IMF) and World Bank—at a time when Pakistan is in dire need of external financial support. Islamabad has been scrambling to secure fresh funding to stabilize its foreign reserves, manage its circular debt, and meet its IMF-mandated fiscal targets. A move by India to block upcoming World Bank assistance would only amplify Islamabad’s fiscal woes and deepen its balance-of-payment challenges.

What this episode reveals is the growing use of financial governance bodies like FATF as tools of geopolitical leverage. This is not unique to South Asia. In the past, similar dynamics have played out with countries like Iran, North Korea, and even Turkey. But in a region as volatile and nuclear-armed as South Asia, the implications are far more pronounced.

Weaponizing financial surveillance mechanisms for political ends can erode the credibility of institutions like FATF. The body operates on technical grounds, guided by objective criteria. If member states begin lobbying for punitive action based on bilateral disputes, the integrity of the entire system could be at risk.

Moreover, such tactics could provoke reciprocal responses. Pakistan could lobby against Indian activities in sensitive regions like Kashmir or northeast India, accusing it of human rights violations or financial misgovernance. The result would be a vicious cycle of accusation and counter-accusation that undermines regional cooperation and institutional neutrality.

India’s assertive foreign policy posture under the current government is not without precedent. From its border standoff with China to its strategic recalibration in the Indo-Pacific, New Delhi has been increasingly bold on the international stage. Pushing back against Pakistan’s global standing fits neatly into this broader assertiveness.

However, such moves risk short-term gains at the cost of long-term regional stability. South Asia remains one of the least integrated regions economically and politically. Instead of seeking ways to bring the region together—through trade, climate cooperation, or digital connectivity—the current trajectory risks deepening mistrust and hostility.

It also forces global institutions into difficult positions. The World Bank, for instance, is expected to fund development based on need and merit, not politics. Should lending decisions become a proxy battleground for political rivalries, it would severely undermine the institution’s credibility and mission.

Pakistan must not view this challenge purely as a diplomatic slight. Instead, it should double down on its commitments to financial transparency, regulatory reform, and counterterrorism enforcement. This includes stricter monitoring of non-profit organizations, tighter banking controls, and judicial reforms to prosecute financial crimes more effectively.

At the same time, Islamabad must launch a robust diplomatic outreach to counter India’s narrative. Countries like China, Turkey, and Saudi Arabia—who have supported Pakistan in past FATF meetings—could play key roles in counterbalancing Indian pressure.

For India, the challenge is to ensure that its push for accountability does not appear vindictive. If the intent is truly to curb terrorism financing and money laundering, then it must offer credible evidence and work through the FATF’s established channels—not attempt to pre-empt outcomes through backdoor lobbying or media leaks.

India’s push to re-list Pakistan on the FATF grey list and oppose World Bank funding reveals how financial governance and geopolitics are becoming increasingly entangled. While nations have the right to raise concerns over security and transparency, they also bear the responsibility of not undermining multilateral institutions for bilateral gains.

The FATF was never meant to be a geopolitical bludgeon. Its purpose is to safeguard the global financial system from abuse. If its processes are politicized, its ability to function effectively will diminish—and global trust in its impartiality will erode.

As for Pakistan, this is another reminder that reputations are hard-earned but easily lost. Staying the course on reform, remaining diplomatically engaged, and demonstrating transparency will not only counter adversarial narratives—it will secure the country’s long-term economic future.